Despite angry dispute, progress is reported on free-trade accord

New York Times News ServiceTHE BALTIMORE SUN

WASHINGTON -- An ugly squabble prevented Canadian, Mexican and U.S. negotiators from concluding the North American Free Trade Agreement yesterday. But participants in the talks remained optimistic that they would be able to strike a comprehensive deal soon.

The blowup came late Thursday night when Mexico made a new demand, trying to reserve all contract work from Pemex, the huge national oil company, for Mexican companies.

Although Mexican officials deny it, several people said the move provoked an angry reaction from Carla A. Hills, the U.S. trade representative, and led to immediate adjournment for the night.

When talks resumed yesterday, participants appeared to be papering over the dispute. Officials of all three countries said they were unwilling to sell their countries short for the sake of a quick deal.

Significant progress has been made. Yesterday, the negotiators reviewed final details on how to count the North American content of cars and trucks to determine whether they qualify for duty-free treatment.

They also decided that new arbitration panels set up by the accord would take precedence over international panels on trade issues involving environmental concerns.

Many environmental groups have said a free-trade pact could put U.S. environmental safeguards at the mercy of international panels that have tended to favor free-trade principles over the environment.

The environmentalists have been worried ever since an panel of the General Agreement on Tariffs and Trade ruled a year ago that environmental standards could not be used to restrict trade, so that the United States could not embargo Mexican tuna even if the Mexican fishing fleet killed many dolphins.

The panel's decision has been largely settled by a Mexican commitment to stop killing dolphins, but environmentalists warned that it could be a taste of decisions to come.

A U.S. official said yesterday that after months of talks, the negotiators finally agreed that trilateral panels set up under the accord would take precedence over GATT panels.

If any of the three countries challenged another's environmental rules before the GATT, the defending country would have the right to transfer the case to a trilateral panel of trade experts with environmentalists and scientists as advisers.

Europe and Japan are likely to criticize the arrangement as a dangerous undermining of GATT, an institution that the United States itself set up after World War II to establish and enforce international free-trade rules. But it is also likely to help the accord's prospects in Congress.